Employee ownership and capitalism

{3E6643C4-0E2F-4C4C-B00C-DB42B68D2316}Img100Beyond the Corporation: Humanity Working, David Erdal, The Bodley Head, London, 2011.

The author of this book has an unusual pedigree.  He was born into a family which owned its own business from the year Charles Darwin was born, in 1809.  As a child he did not lack for money and joined the firm in 1977, at which time 1,500 people were employed in the company.  In 1985 he became its effective Chief Executive Officer.  In between he had led a rather different life, getting a job as an unskilled labourer on a London building site after leaving university

Through this real life experience he leant what thousands of Professors of economics are not – that it is employee’s work that creates wealth – and that the key to a company’s performance is leadership and commitment; leadership and commitment from everyone in the organisation.  That leadership is important should be readily understood by socialists.

He is therefore a strong advocate of employee ownership and the book presents his own experience of turning his family business into a workers’ cooperative and his own views on the benefits of such ownership.  He notes that because workers are so used to being ignored and exploited even the most minimal change, such as being allowed to own shares in the company, have positive effects in boosting productivity and performance.  He also notes however that such schemes transfer no real influence.  He is therefore clear that what is necessary is ownership because without ownership there is no real control.

Employee owned businesses do better because their workers are better trained, contribute more to the business and are more adaptable to change.  They generally do not suffer from underinvestment, do not lack ‘entrepreneurial’ spirit and do not exhibit shirking as workers monitor each other’s work effort.  Academic studies show them to be more productive and, while business problems are not solved by employee ownership in itself, or prevent strategic mistakes that may threaten the company’s existence, employee ownership will help the company survive longer.  If you own something you will look after it better.

He contrasts this with the views of traditional economists who, with no evidence, in fact against the evidence, claim that employee ownership will witness workers extract cash at the expense of the long term health of the business, take too long to make decisions, will see them avoid difficult decisions and witness the performance of  their business decline

In contrast he claims that the participation of everyone in decision making, and everyone being equally affected by the decisions made, makes for better decisions.

In his quest to turn the family company into a workers’ cooperative he was repeatedly told by finance advisors and other professionals that this was not a good idea.  The Market is always right – by definition.

He quotes one supporter of employee ownership who complains that workers normally have none of the rights associated with ownership, such as information, participation and control, and that while capitalism is good at creating capital, it is lousy at creating capitalists.

The view that cooperatives make capitalists of workers is one also heard from trade unions and argued as a reason to oppose workers’ ownership.  The author provides many examples of real employee ownership where workers have struggled with issues of productivity and competitiveness and where jobs have had to be cut because of threats of wholesale closure.

However the view that the Market is inimical to workers’ cooperatives is interesting because  in strict logic this is obviously not the case while it is also not the view most widespread on the Left, which is that workers’ cooperatives are simply not an alternative to capitalism because the market does not disappear and therefore capitalism does not disappear.

But it is not at all that simple and the hostility of some defenders of the market to worker owned companies is perfectly rational.

Irrespective of this the author notes that every generation throws up experiments with workers’ ownership but that most often this is not the result of the initiative of the workers themselves but arises from existing owners, from unusual individuals who stand against prevailing orthodoxy.  Who, from ideals of fairness, from appreciation of the contribution made to the company by workers, or realisation that the company can do better under their ownership, seek to transform ownership of their business.

Among the many issues arising from the idea of employee ownership, access to finance is often held up as the insuperable barrier to a business owned by those who work in it.  However the author notes that millions of small businesses do get access to finance, that most companies finance themselves from their own resources or can get started on the basis of the business itself, with funding based on sound business plans or backed by existing assets.  Or, in the case of the Mondragon cooperative in the Basque country, the workers can set up their own bank to finance their other cooperative initiatives.

This he contrasts favourably with the massive funding of mergers and acquisitions by private companies, which have a consistent record of failure, and the funding of property and other asset bubbles.  Mainstream dismissals of the viability and efficiency of workers’ cooperatives ignore the actual history and experience of capitalism as opposed to the mythical equilibrium properties of mathematical models of the market that exist nowhere outside of the models.

The massive increase of executive pay is ridiculed as an example that explodes the glib justifications of the market – that high pay for those at the top is simply the outcome of the interplay of supply and demand.  The demand for executives has not increased exponentially in line with pay but demand, fuelled by the cult of the capitalist exhibited in the growth of business schools and the MBA, alongside TV programmes such as ‘Dragon’s Den’ and ‘The Apprentice’, has seen supply multiply.  So why has the price risen?

Even if it could be argued that the demand for executives lies behind massive increased remuneration (to use the prevailing argot) the market is then supposed to increase supply to drive down prices to an efficient level.  Why hasn’t it?  Is it not working or is it rather that this is not how it actually works?

In the race to justify the rampant growth of inequality we now read about the ‘winner-takes-all’ society, which states baldly that market competition rewards those who win not those who come second or third or the rest.  The problem with this of course is that it is contradicted by the reality in which executive failure is still handsomely rewarded.  More worryingly for its proponents it contradicts the claim that the market rewards efficiency and is fair even minimally.

The author rejects many of the fashionable corporate claims.  For him employee ownership makes companies work better and their workers lead happier lives.  The contract of employment, which a worker signs, removes his right to his own product and pretends that he or she is a thing that can be rented.  Through case studies he argues that ownership make workers feel different – just as capitalism says it is supposed to!  But, he asks, why should such an effect be restricted to a few?

He has had enough experience to acknowledge the difficulties, not just of creating cooperatives but of running them.  How do you ensure workers’ actual as opposed to nominal participation and how do you deal with sometimes unrealistic expectations?  How do you overcome apathy among the workers?  After all, it is necessary not just to limit and control power exercised at the top but also necessary to ensure that it is wielded to effect at the bottom.

He addresses these questions and gives some practical answers, such as ownership being held collectively and not individually by particular workers.  This, he claims, has been the mechanism that ensures longevity of cooperative enterprises and obstructs private capital inserting itself and gaining control.  He acknowledges however that there is no obvious answer to what he calls the corporate governance problem.

It is exactly this question that is addressed by this recent blog post.  It is also only a Marxist approach that can address some of the apparently incongruous workings of capitalism that the author points up, such as why does it limit ownership of capital and not spread it around?

For a Marxist the obvious reason that capitalism does not encourage workers’ ownership is that by restricting such ownership capital compels workers to sell their labour power to those that do own capital and impels them to work on their behalf.  If all production was owned by workers then clearly an individual capitalist would be unable to compel anyone to work for them.

If all production was owned by the workers then equally clearly such production would be geared to what the workers wanted to produce and not to what capitalists believe would make them the most profit.  On both accounts production for profit would end.  Capitalists could find no one to provide the unpaid labour on which profit is based and the enterprises owned by the workers would have no incentive to pursue wasteful or aggressive competition aimed at forcing other enterprises out of business.  In fact they would have every incentive to collaborate in order produce in a way that met their collective needs.

When ownership becomes collective workers will feel differently but this simply demonstrates the truth of Marx’s claim that capital is not a thing but a relationship between capitalists and workers in which the unpaid labour of the latter expands the capital belonging to the former.  When workers own all the so-called capital it ceases to be a relationship between an owner and a worker, between an exploiter and exploited, and ceases to be capital.  When ‘capital’ is owned by everyone it ceases to be owned by anyone in particular so ceases to be capital.  This is why, unrealised by the author, the extension of workers ownership would spell not the expansion of capitalism but its ending.

Again and again the author reflects on how difficult it can sometimes be to get workers to think and act as owners of the enterprises they work in.   For Marxists this is indeed a big problem and is what we mean by saying that we need a revolution to change things, including changing the workers themselves.  Because a revolution is about transforming the lives of the working majority, which they can only do themselves, this includes transforming the vast amount of their lives they spend at work.  Probably unlike the author, we believe there are all sorts of obstacles and impediments put in workers way to gaining control of production, impediments that require workers taking political action to remove.

Production is only one aspect of how society works and attempting to take control of it requires ultimately taking control of the rest of society as well.  Taking control of society as a whole also reinforces the activity of workers control within the workplace.  It is also the Marxist case that ultimately no permanent and stable workers ownership or control can succeed unless the workers also control the state to defend such ownership.

There is therefore a real contradiction between workers cooperatives and capitalism, pace the author of this book, and equally no contradiction between cooperative production and revolution, pace the left opponents of workers’ ownership.

To be continued

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